There's a currency war being waged and Peter Schiff of Euro Pacific Capital has some good news and bad for America. On the positive side Schiff thinks the U.S. is in position to win this particular conflict in a big way. Alas, that's not quite as positive as it initially seems.
"Unlike a conventional war, the objective in a currency is to kill yourself," Schiff declares.
The reason countries are debasing their currency is because it inflates corporate profits and makes it cheaper to pay back debts. The U.S., having borrowed trillions, prefers to pay those debts back using less valuable (debased) money. The lenders don't like it but for the borrowers a currency falling in value is like new found money. At least for a while.
There is no free lunch. The price the U.S. pays for this currency debasement is that it amounts to a transfer of wealth from loaners to borrowers not just on an international level but also locally. Even miniscule inflation is losing out to many government securities favored by ultra conservative, generally aging investors.
If and when inflation kicks in the way Schiff and others predict, the problem gets even worse. Suddenly nest eggs will have almost no buying power, those who borrowed recklessly get rewarded, and the economic world as we currently know it becomes a much more complicated and unpleasant place.
Other countries have now gotten on board the debasement bandwagon but Schiff says they won't be able to compete with the U.S. for long.
"We're going to win the war which means Americans are going to lose," he concludes.
- Politics & Government
- Peter Schiff